German growth to hit 3% but expansion rate to slow

THE GERMAN economy is set to grow by about 3 per cent this year, but the rate of expansion will slow following a surprising surge in the second quarter of the year, the Bundesbank said yesterday.

Exports have helped Germany accelerate away from its euro-zone peers, with growth surging to 2.2 per cent in the second quarter, the fastest expansion since reunification. “Signs are increasing that the economic recovery in Germany is increasingly self-supporting,” the Bundesbank wrote in its monthly report.

“From today’s point of view, one can expect an increase in real GDP in Germany of around 3 per cent on average in 2010, after almost 2 per cent in the June forecast,” it added.

The forecast is more optimistic than economy minister Rainer Brüderle’s view after last week’s GDP data that Europe’s largest economy was set for growth “well above 2 per cent” this year. It is in line with the more upbeat end of analysts’ expectations.

However, growth was likely to slow from its surprising surge from now on, the Bundesbank, Germany’s central bank, said. “An argument for that is that the global economy will likely follow a more moderate path of expansion in the second half of the year,” it said, slowing German exports.

Corporate investments are on the rise though, with business sentiment picking up in recent months. Germany, which runs a surplus and relies heavily on exports to drive growth, has come under pressure from some other countries, including France, to boost domestic demand to help address euro-zone imbalances.

Germany has opted for belt-tightening measures to help rein in its budget deficit and expects that will not entirely crush its growth, while more peripheral euro-zone members are likely to suffer more from such fiscal tightening.

The Bundesbank said EU budget rules and the means to implement them should be toughened to bolster the EU’s Stability and Growth Pact and to avoid future debt crises. – (Reuters)